Polish M&A seen on the up in 2016

(Ryan McGuire, CC)

Polish M&A will likely continue to spur in the real estate, telcom, IT and health care sectors in 2016.

“You can also expect reshuffle in the financial sector,” according to Marta Kotwis, Key Account Director at FORDATA, a Poznan-based Virtual Data Room (VDR) provider.

“We believe that the sharing economy, IT industry and solutions related to energy efficiency as well as cloud-based solutions with a strong focus on information security/data protection, for example Virtual Data Room, are the areas that will gain popularity. The use of VDR technology in transactions in Poland has already been increasing month on month,” according to Piotr Jankowski, Senior Account Executive at FORDATA.

Despite the modest value of transactions being concluded in Poland (transactions with a value of up to PLN100m are apparently dominant), 2015 was a record-breaking year on the Polish market. In 2015, over 220 transactions were concluded in Poland, which is an increase of 40 per cent compared to 2014.

In the first half of 2015 there were 58 merger and acquisition (M&A) contracts in Poland, which translates to an increase of 7 per cent on a yearly basis. The total value of deals hit EUR3.4bn, according to a report compiled by law firm CMS and Mergermarket. However, the total value of completed M&A deals fell from USD11.3bn in 2014 to  USD3.4bn in 2015 and is expected to peak at  USD7.1bn in 2018, according to Oxford Economics.

Deal activity will slow from 2019 to 2020 following a pullback in equity prices, the think-tank continued.

“We expect the number of completed M&A deals to rise from 363 in 2014 to 545 in 2018, then drop to 344 in 2020. Inbound cross-border M&A activity is forecast to drop to 65 per cent of Poland’s total completed M&A deal value in 2018, from 78 per cent in 2014.”

Meanwhile, domestic IPO issuance is projected to rise from  USD359.2m in 2014 to  USD448.8m in 2015, before peaking at USD1.7bn in 2018.

The European M&A market was worth about EUR418m in 2015, its highest value since 2007, the report indicated. However, the number of transactions declined by 14 per cent, to 2,800, compared with 3,300 in the corresponding period.

Differentiation within CEE

The Polish and CEE market in 2015 can be described as the one with a moderate rate of return and risk compared to the emerging markets in other regions of the world.

“Investors are ceasing to consider the CEE as a homogeneous market, pointing their attention to selected markets such as Poland, the Czech Republic or Slovakia. Poland, in particular appeared to be a very active market throughout the last six months,” according to Andrew Kozlowski, the Managing Partner of CMS Warsaw office.

He pointed to sectors such as new technologies, media and communications, industrial-chemical, pharmaceuticals and medical market, finance services, commodities, BPO and energy market as also active when it comes to M&A transactions.

The big deals

The statistics are however inflated by a handful of big transactions. The largest are the acquisition of 52.7 per cent stake in TVN S.A. by Scripps Networks for PLN2.416bn and the acquisition of PKP Energetyka S.A. by CVC Capital Partners for PLN1.41bn.

In Poland in 2015 investment funds were quite active. They raised capital for new investments in the region as one can get higher return rates than in Western Europe. Experts expect their activity will be intensified in 2016.

Out of global step

Meanwhile on the global stage 2015 was a record-breaking year (the largest transaction and deals were concluded in the United States with the merger of two pharmaceutical companies Pfizer and Allergan worth USD183.7bn). About USD3.5 trillion (an increase of almost 25 per cent compared to 2014) was transacted.

“Cheap money may encourage investors to increase activity in Poland. However, there are also risk factors like political turmoil, which may result in withdrawal of investors from the regulated market (stock exchange, treasury bonds). Investors will either choose private markets (resulting in an increased activity of M&A in Poland) or other countries, relatively safer, but less profitable. As long as the political situation in Poland does not change investors will be tempted to stay here also by the depreciation of the zloty. Many transactions initiated or planned for 2015 will continue in 2016,” Piotr Jankowski, FORDATA Senior Account Executive, said.

Equity market gloom

“The revival in the M&A market was not accompanied by improved sentiment on the Warsaw Stock Exchange (WSE). The WIG index lost more than 12 per cent in the period from January to December. At the same time, the German DAX rose by more than 5 per cent, and the US Nasdaq by 6 per cent,” Jan Kospin, Director of Navigator Capital, added.

In 2015 the Polish Stock Exchange was influenced by several factors. One of the most important was the poor figures coming from the Chinese economy, which hit global indices, affecting among others a strong sell-off in commodity markets.

Investors are still also concerned about the unresolved conflict in Ukraine and uncontrolled influx of immigrants into Europe, which causes disputes among the countries of the European Union.

Political factors have caused concerns among investors on the WSE, which was reflected particularly in valuations of banks, as well as mining and energy companies. Investors fear the political pressure on the management boards of energy companies that may be forced to support the unprofitable coal mining sector, which is a strongly controversial movement from the business point of view.

Even the positive macroeconomic data did not help Warsaw Stock Exchange, e.g. a falling unemployment rate, which, according to a survey of the Ministry of Labour and Social Policy, amounted only to 9.7 per cent in November, which is the lowest value since late 2008.

“In the past year, we have witnessed a number of significant and interesting transactions. The largest of these was the acquisition of 52.7 per cent shares of TVN by Scripps Network Interactive for over PLN584m, and then the Polish media giant’s withdrawal from the WSE,” Kospin says.

Other outstanding deals were the acquisition of LW Bogdanka SA by Energy Group Enea for almost PLN350m and a takeover of PKP Energetyka by private equity fund CVC for ca. PLN476m.

Among other interesting transactions were the acquisition by Wielton, a company listed on the WSE, a leading Polish manufacturer of truck semi-trailers and curtains, of a majority stake in Fruehauf Expansion, its direct competitor on the French market. This transaction displays a growing trend of Polish companies expanding into EU markets by taking over their western competitors.

Who’s selling?

In 2015, the most active vendors in the Polish market were private persons and, on the other side, the most active buyers were PE/VC funds. This may indicate the increasingly common practice of the sale of businesses by their founders, who were faced with the problem of succession.

“We are moderately optimistic regarding the situation on the M&A market in 2016.  One of the key factor contributing to the increase in the number of M&A in Poland is certainly a growing maturity in many sectors of the economy, forcing the consolidation of operating companies,” Kospin says.

One thing is for sure – the following year will be very interesting.”

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